280 | Premium Letdown: Hotels challenge property insurers’ refusal to cover COVID-19 revenue loss


As the hospitality industry struggles to mitigate the massive loss of revenue caused by the coronavirus pandemic, hundreds of hotel owners are filing lawsuits to force their property insurance providers to cover their financial casualties.

Meantime, state and federal lawmakers are considering legislation that would mandate U.S. insurance companies pay for business losses related to COVID-19.

Such a payout could surpass $600 billion, reported Best’s Insurance in May.

American Property Casualty Insurance Association, a trade group, puts the payouts even higher. In June, the association reportedly estimated payouts to would cost insurers $255 billion to $431 billion a month.

The amounts are not sustainable and would ultimately make many insurers insolvent, say insurance industry experts.

Hotel owners say they deserve payouts because they’ve paid premiums for years to cover high-loss scenarios such as the one they’re facing now.

In almost every case, insurers are refusing to pay, saying policies exclude losses caused by a viral plague or COVID-19 has not caused any physical damage to hotel properties that result in a stoppage of business.

It’s fixing to be an epic battle.

In this episode of Lodging Leaders, we examine the issue of business interruption insurance for hotels negatively impacted by the coronavirus pandemic.

We feature Sanjay Patel, CEO of MHG Hotels in Indianapolis who has filed a lawsuit against his insurance provider; Robert Zarco, a partner at the law firm Zarco Einhorn Salkowski & Brito in Miami who specializes in litigating business interruption insurance claims on behalf of business owners; Gregory Riehle, a lawyer and hospitality consultant and former CEO of the Resort Hotel Association, a hotel insurance group; and Robert Hartwig, Ph.D., a clinical associate professor and director of finance at the Center for Risk and Uncertainty Management at the University of South Carolina’s Darla Moore School of Business who’s co-authored a white paper about the un-insurability of businesses affected by viral pandemics.

Resources and Links

  • 311 | Shelters From the Norm: Hotels used for hospitals and housing face unexpected problems

    A year ago, Darshan Patel, CEO of Hotel Investment Group in San Diego, California, was one of the first hoteliers in the U.S. to step up and offer properties to overwhelmed hospitals seeking places to care for COVID and non-COVID patients as well as vulnerable populations. As the crisis eases and Hotel Investment Group works to return the hotels to business, Patel is negotiating with local governments to pay for the wear and tear on the properties. Patel is not alone as many hoteliers are unexpectedly dealing with problems that state and local governments’ urgent decisions have created, including property damage, increased costs and eviction bans. This report is the second in a two-part series examining the pros and cons of opening hotels to alternative uses during the pandemic. It is part of Long Live Lodging’s special coverage of the coronavirus crisis and its impact on the hospitality industry.

  • 310 | Hotels Convert to Housing: Federal COVID-19-relief funds fuel transactions

    Dhruv Patel, president of Ridgemont Hospitality, in October shared a bittersweet moment with his parents, Pravin and Sima Patel, when the family business sold the first motel that Pravin had built from the ground up more than 30 years ago. But they rest assured knowing it was the right decision because the 22-room property is being converted into affordable housing for military veterans at risk of homelessness. The transaction is among hundreds taking place across the U.S. as state and local governments work with non-profit agencies to create affordable housing solutions for vulnerable populations amid the COVID-19 pandemic. In Episode 310 Long Live Lodging reports on the financial and legal aspects of what it takes to convert a hotel into long-term housing. This report is part of Long Live Lodging’s special coverage of the coronavirus crisis and its impact on the hospitality industry.

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